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Brian Pennington

A blog about Cyber Security & Compliance

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Marsh Insurance

Cybersecurity: The Looming And Growing Threat

Corporate legal spending on cybersecurity issues hit $1 billion last year, according to the BTI Legal Spending Outlook. It’s easy to see where this money is going: By 2018, more than 50% of organizations will use outsourced providers for security, Gartner predicts.

Here are seven trends expected to impact CIOs, law firms, and their clients in the year ahead:

1. Banking on IT and law firms vulnerability

In the wake of last year’s cyberattack that affected 80 million J.P. Morgan Chase customers, several banks asked their law firms to implement stronger security measures. Today, several banks and major U.S. law firms are collaborating to create a formal group by year end where they can share best practices with each other and government agencies.

“Law firms increasingly are seen as potential weak links,” the Wall Street Journal reported. “Clients often entrust them with everything from valuable trade secrets to market-moving details on mergers and acquisitions.”

2. Data breaches growing more common

More than one-quarter (27%) of chief legal officers reported a data breach within the past 24 months, according to the Association of Corporate Counsel‘s recently released 2015 CLO Survey. Healthcare CLOs were most vulnerable: almost half reported a breach in the last two years, compared with approximately one-fourth among CLOs in other lines of business, the report found.

4. Changing Regulatory Landscape

This year, the European Union is expected to unroll more stringent disclosure and liability requirements that it will start enforcing in 2016. This could lead to a business boom for law firms, will likely also necessitate educational outreach: 77% of European companies surveyed by security developer Sophos did not know whether or not they were compliant with current standards.

Across the pond, President Barack Obama also has called for changes to the Computer Fraud and Abuse Act, the federal anti-hacking statute.

5. Crashing Mobile

Today, 96% of lawyers at firms with 100 or more attorneys use a smartphone, according to the American Bar Association’s annual Legal Technology Survey. And 49% of all lawyers surveyed use a tablet, the report found.

This makes attorneys vulnerable to a growing number of viruses, spam, and attacks specifically targeting mobile devices. If unprotected by even a basic password or biometric safeguard, lost devices leave a firm vulnerable to stolen data. Across industries, only 54% of respondents implemented a mobile security strategy in 2014 compared with 42% the prior year, a PricewaterhouseCoopers study reported. In addition, 47% now use mobile device management (MDM) or mobile application management (MAM), versus 39% in 2014, PwC said.

Across all industries, 46% of IT decision makers plan to increase security spending for mobile this year, Ernst & Young determined.

Advances in wearables and future decisions in how and whether healthcare can incorporate data from devices such as fitness monitors will further complicate mobile security for firms involved in these areas and the CIOs who support them.

5. Insurance at a Premium

Organizations increasingly invest in cybersecurity insurance, to lessen the potential impact of a breach, network damage, or business interruption. Once offered by only a handful of specialized firms, these plans now are available from a wide array of insurers.

To attain cybersecurity insurance, organizations typically must undergo audits and other processes to assure the insurer of the firm’s viability. CIOs, in partnership with governance, risk-mitigation, or the COO, are then assured both of the caliber of the firm’s existing security set-up and of financial coverage should the unwanted occur. Cybersecurity insurers include: AIG; Chubb Group of Insurance Companies; Marsh USA; Philadelphia Insurance Companies, and Travelers Indemnity Co., among many.

6. Ignore Social Niceties

Many law firms hire outside experts to conduct vulnerability assessments and craft strategies to combat Many experts advise staff to frequently reset passwords that contain symbols, capital letters, and numbers. And best practices must address common phishing scams, especially those targeting corporate or client contact information or employee data. Fake apps, fraudulent social media contacts, and hackers masquerading as maintenance staff are all favorite guises for social engineers.

7. All for One, One for All

Security is not exclusively the CIO or CSO’s responsibility. Rather, security must be weaved throughout a law firm so every employee, partner, and attorney cares and acts with security in mind. Communication between departments to ensure security procedures are effective but not onerous help develop a security conscious environment.

Frequent reminders, via screensavers, automated systems, brief self-paced videos, or occasional webinars – remind everyone about security measures. Quickly responding to users’ needs to avoid rogue setups further eliminates vulnerable areas.

Author:

TAKE UP OF CYBER INSURANCE REMAINS LOW

Marsh has undertaken an in-depth study into organisations’ attitudes towards the cyber threat, the management control processes they have in place, and their understanding and use of cyber insurance as a means of risk transfer. The benchmarking data in this report was collected from risk professionals and CFOs from large and medium-sized corporations from across the UK.

Spotlight on cyber risk to UK companies:

  • 18% of organisations have a “complete understanding” of cyber risk, down on last year
  • 4% of UK businesses have board-level oversight of cyber risk
  • 4% of companies do not assess their suppliers and/or customers for cyber risk

Firms across the UK continue to place cyber among their leading risks in terms of the likelihood and severity of impact; however, suggest there is still a lot of work to do to improve understanding and management.

Interestingly, there has been a substantial drop in the percentage of respondents who feel they have a “complete understanding” compared to last year (down from 34% to 18%).

This comes at a time when cyber risk is being elevated as a board agenda item, suggesting that executive-level interrogation has exposed a pre-existing overconfidence in the level of knowledge and understanding within certain organisations.

If this is the case, then it is clear those tasked with creating and delivering critical management information relating to cyber risk need more help and guidance to get them to a position where the level of management information is adequate.

Cyber risk is ranked as a tier one threat according to the UK National Security Strategy, and it is therefore surprising that 26.4% of UK companies surveyed do not consider it to be material enough to even get on the risk register. Just 16.6% of companies place cyber as a Top five risk on the risk register, while the remainder place it outside of the Top 10.

73% of respondents from the manufacturing industry say that cyber risk does not appear in the Top 10 risks on their corporate risk registers, the highest proportion of industry segments we surveyed.

This is perhaps understandable due to a low level of high-profile cyber incidents within the industry; however, as a key target for industrial espionage, and with instances of industrial control technology being compromised recently reported, one could argue that the threat is being underestimated.

The fact that fewer than 31.9% of respondents have identified one or more cyber scenarios that could most affect their organisations suggests that the lack of a complete understanding and absence/low positioning of cyber on the risk register is, for many companies, filtering through to a lack of definition around specific scenarios that might impact their businesses.

Board-level ownership of cyber risk exists in 19.4% of UK organisations. While this figure is broadly in line with last year’s findings (20%), it remains very low. Meanwhile, IT departments continue to take primary responsibility for cyber risk in 55.5% of organisations. Cyber risk is increasingly recognised as a business risk rather than simply a technical control, and, within this context, it is disappointing to note that there is no material upwards movement in risk management and board functions seizing responsibility from IT (the percentage has risen incrementally to 15.3% from 14% in 2014). IT departments might know how to implement cybersecurity; however, the inability of IT to drive value for the organisation or the potential for significant damage to be caused as a result of a security breach, most certainly is a business risk, the consequences of which will be felt at the highest levels of the organisation should it occur.

Boards therefore need to take ownership of cyber risk before a cyber event forces it on to the board agenda, and communicate the identified security priorities to IT departments so that they can align their activity and resources against the business’s risk management agenda.

Lack of data continues to prevent companies from adequately assessing cyber risk

The percentage of firms that have experienced a cyber-attack in the past 12 months has risen to 40.3%, albeit marginally (from 31% in 2014).

However, compared with other statistics (HM Government’s 2015 Information Security Breaches Survey states that 90% of large organisations and 74% of small organisations have suffered a security breach), this figure is still low, indicating that many of the respondents to this year’s survey are either particularly fortunate or (more likely) unaware of breach events within their firms.

Interestingly, 100% of respondents in two industries, communications, media, and technology and energy reported that they had been subject to a cyber-attack in the past 12 months. This most likely reveals a more enlightened position of those organisations rather than any high level of vulnerability.

In terms of organisations that have conducted or estimated the financial impact of a cyber-attack, this year’s survey results are somewhat contradictory to earlier findings. As such, it would be reasonable to question the rigorousness of the financial analysis around those numbers and how many are in fact high-level estimates rather than worst loss values calculated from detailed information and knowledge of cyber risk and individual exposures.

61.1% of organisations have not yet made any attempt to estimate/calculate loss estimates, however, suggesting that they are operating in the dark when it comes to the financial impact upon their businesses.

This puts them in a poor position to transfer the risk or even to appreciate whether a cyber event might threaten the viability of the company. Event modelling, combined with financial stress testing, is required to evaluate both the total financial loss attaching to an event and the shorter-term availability of cash to maintain trading.

The majority of organisations have not planned for sources of funding; however, the 48.9% that have is an encouraging number. Since just 11.1% of companies are buying insurance, it must be the case that companies are bypassing the insurance market and finding alternative methods to fund the risk (from available cash lines or lines of credit or assets that can be disposed of rapidly, for example).

Possessing and rehearsing an incident response plan is recognised as having a very positive effect on the operational, financial, and reputational impact of a cyber- attack upon an organisation.

The effect for breaches of personal data was quantified in the Ponemon Institute’s 2015 Cost of Data Breach Study, which reveals that those companies with an incident response team in place typically make a GBP £9.50 saving on the per capita cost of a data breach, compared with the mean per capita cost.

Lack of control over suppliers/third parties a major concern

It is both a surprise and a huge concern that 69.4% of respondents to this year’s survey do not assess the suppliers and/or customers they trade with for cyber risk.

Suppliers and external organisations with whom system links are shared present one of the key vulnerabilities to UK companies. Businesses have done a lot to improve cybersecurity in the past 12 months; however, their exposure to third parties, whether service providers, product suppliers, customers, or, in the case of banks, borrowers, presents significant risks to companies’ networks. In addition to this, 51.4% are not asked to demonstrate a competent standard of IT security practices to their own bank and/or customers in order to do business with them.

While organisations can control their own networks, they have much less control over those of the suppliers/third parties that they might be linked to. Without the appropriate checks, this leaves them exposed and lacking control over standards of IT security in systems where hackers might find a “back door” into their organisation.

There therefore needs to be an improvement in supply-chain resilience to cyber-attack if organisations are going to reduce the threat arising from this key vulnerability. This is especially true for large organisations with a profile that attracts highly motivated and sophisticated hackers who might identify smaller business partners that are typically less well protected. For example, a recent report published by Marsh and the UK Government highlighted that 22% of small businesses admit they “don’t know where to start” with cybersecurity.

One of the most well-publicised cyber breaches in recent years occurred at a large US retail company after hackers stole network credentials from a third-party heating, ventilating, and air conditioning (HVAC) contractor that had an IT link with the victim’s corporate systems. Incidents like these are likely to rise in frequency until organisations place greater focus on setting out the basic technical controls that all suppliers/ contractors should have in place.

More than half of respondents are not asked to demonstrate a competent standard of IT security practices to their own banks and/or customers.

Take up of cyber insurance remains low

52.8% of respondents’ organisations are engaged with the insurance market in one way or another. 

Marsh’s experience and earlier findings in this survey suggest that the remainder are not yet ready to approach the market as they have an incomplete understanding of the risk, as opposed to them making a conscious decision not to purchase insurance following a value-based judgment.

This latter explanation would tie in with the earlier finding that 68.1% of organisations have not identified one or more cyber scenarios that could most affect their organisations. Organisations such as these, because they have not carried out the financial assessment required are in a poor position to approach the insurance market and place a value on transferring the risk. The survey data therefore suggests that more work needs to be done by organisations and their professional advisers, including their insurance brokers, to help improve their understanding of cyber risk and their cyber exposures and demonstrate what value insurance can bring.

The insurance market continues to address the issues that represent organisations’ greatest concerns a standard cyber insurance policy can deliver cover against breach of customer information (31.9%) and business interruption (22.2%), while computer crime/fraud (12.5%) can be insured against via a comprehensive crime insurance policy. The insurance market is also making inroads to deliver meaningful cover for reputational loss (8.4%).

Of particular interest is that none of the respondents from the industrial sectors identified physical property damage as a priority risk, despite a lot of recent attention being given to the threat that exists to critical infrastructure and the potential for tampering with industrial control technology.

The findings suggest that companies recognise that cyber insurance is not a holistic solution in dealing with cyber exposure and that, in fact, it covers only certain specific events and outcomes.

Cyber exposure might attach itself to a number of different insurance policies that need to maintain an effective response when the loss or liability outcomes are created by cyber events. 48.6% of respondents admit to having “insufficient knowledge” in order to assess the insurances available, which may suggest a lack of insight into what can be insured by a cyber insurance policy. However, in view of the earlier findings, this figure might also indicate that a lack of understanding of their firm’s own risk profile places many respondents in a position where they are unable to make an informed judgment as to whether the cover is appropriate.

Cyber insurance is not a holistic solution in dealing with cyber exposure and covers only certain specific events and outcomes.

Marsh’s conclusion

Clearly, there is still a lot of work that needs to be done by UK organisations in order to improve their understanding and management of cyber risk. Achieving a high level of understanding is essential as it serves as the foundation stone upon which all other cyber risk transfer and mitigation decisions need to be made.

The solution to this lies in the boardroom, and it is still a great concern that the board takes primary responsibility for cyber risk in 19.4% of organisations surveyed. Only with board-level buy-in can companies take the big strides needed to advance their knowledge and perform the financial modelling required. Proper assessment and quantification of the risk will lead to better targeted mitigation, practical improvements in risk management, and the ability to judge the value of the risk transfer options available on the market.

One particularly interesting, and somewhat remarkable, finding to emerge from this year’s survey is 69.4% of respondents’ organisations do not assess the suppliers they trade with for cyber risk. Supply chains are proven to be a critical vulnerability in corporate IT networks, yet there appears to be too little work being done to ensure that the entities with which companies share system links are following basic good security practices.

This has to improve as, for all the proactive steps taken and money invested to harden corporate networks against cyber-attacks, a security breach at a contractor or service provider, for example, could potentially allow hackers to circumnavigate all of that.

The insurance industry can play and is already playing a role in that assurance process; however, more work needs to be done in order to move the security focus away from the edge of the corporate network and to the heart of strategic decision making.

The full report with the references can be found here.

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